The awarding of a contract to conduct audits of redemption centers in the state Deposit Beverage Container Program turned into a classic example of the procurement process run amok, as found by the state auditor in its recently released Report 15-09.

In late 2008, the Hawaii Department of Health, which administers the deposit program, needed an audit of six of the redemption centers it had certified.

DOH sent out a request for proposals, or RFP, which was designed to invite potential vendors to bid on the job. Only one vendor bid, saying it could do the job for $76,400 — but it wanted to talk about it some more.

Plastic bottles at RRR

Plastic bottles at a Hawaii recycling facility.

In the ensuing months, the firm figured out that it was the sole bidder, so it said it really needed to rethink its bid. That made the DOH ask the the State Procurement Office for advice on whether it should redo the RFP. The SPO concluded that additional bidders might be interested because of some changed job specifications, and recommended re-solicitation as a services procurement.

Ultimately, the SPO ordered the DOH to redo the solicitation, and the DOH refused, saying that there was only one bidder so it would be pointless to go through the RFP process again. It instead went with an “alternative procurement” which in this case meant renegotiating with the sole bidder. The DOH awarded the contract to that bidder in July 2009, and the contract price was $340,000. To justify the higher price, the firm argued that (1) it was the first audit of the redemption centers, so it probably would find tons of irregularities; (2) additional time was needed to document its understanding of how the program worked; and (3) it was difficult to estimate the time needed to complete the audit testing.

Huh? Why didn’t the firm know all three of these things when it first submitted its bid?

There’s more. Just before the DOH signed the contract, the bidder said that it was pulling out of the Hawaii market, and that it sold its practice to another firm. The DOH then executed the contract with the second firm in August 2010. That firm then apparently asked for some change orders. In February 2011, DOH and the second firm signed a contract modification raising the contract price to $543,374. Other problems arose as the contract was being executed, and the DOH finally put the brakes on it; but by that time more than $525,000 was out the door.

What the heck is going on? When confronted with the state auditor’s report, the DOH admitted that “(i)n hindsight, re-solicitation would have been prudent.” That’s all?

Is that how we steward taxpayers’ hard-earned dollars? Government procurement can work if it’s done right. The auditor recommended changes in the process. But we need changes in not only process but mentality because this is the type of story we never want to see repeated.

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